The FDIC Board of Directors today approved a final rule that
clarifies the regulatory capital treatment for unrealized gains and
losses on securities that are "available-for-sale."

The rule is being issued in response to "FASB 115" -- Statement
No. 115 of the Financial Accounting Standards Board -- which requires
institutions to recognize as a separate component of stockholders'
equity any holding gains and losses on securities that are deemed
available-for-sale. In general, this refers to securities that a bank
does not have the positive intent and ability to hold to maturity but
also does not intend to actively trade.

Banks already are required by the banking regulators to follow
FASB 115 for the quarterly Reports of Condition and Income (Call
Report), under instructions issued in 1993 by the interagency Federal
Financial Institutions Examination Council (FFIEC). At issue,
however, has been the application of FASB 115 to regulatory capital
standards.

The FDIC and the other banking regulators previously proposed to
require that net unrealized gains or losses on all available-for-sale
securities (debt as well as equity securities) be included in
determining Tier 1 capital. Today, the FDIC Board joined with the
Federal Reserve Board and the Office of the Comptroller of the
Currency in rejecting that earlier proposal. Instead, the FDIC is
adopting only technical changes to conform the wording in its leverage
and risk-based capital rules with the terminology used in FASB 115.
A similar rulemaking is expected to be issued soon by the Office of
Thrift Supervision for the institutions it regulates.

FDIC Chairman Ricki R. Tigert said today: "We believe bank
regulatory capital levels would be unnecessarily volatile, without
appreciable benefits to the safety and soundness of the banking
system, if institutions were required to include all unrealized
securities losses in their regulatory capital calculations."

The new FDIC rule also closely tracks interim guidance jointly
issued by the three bank regulatory agencies in December of 1993 and
the capital treatment recommended by an interagency task force of the
FFIEC in November of 1994.

Under today's final rule, net unrealized holding losses on
available-for-sale equity securities (but not debt securities) with
readily determinable fair values will be deducted from the elements
that determine Tier 1 capital. All other unrealized holding gains or
losses on available-for-sale securities will be excluded from the
definition of Tier 1 capital. However, the extent of any unrealized
appreciation or depreciation on securities will continue to be a
factor that FDIC examiners consider in their overall assessment of an
institution's capital adequacy.

Consistent with existing guidance from the regulators, the
amortized cost rather than the fair value of available-for-sale debt
securities generally will continue to be used when calculating
leverage and risk-based capital ratios. Banks also should continue
to use the amortized cost of available-for-sale debt securities when
reporting average total assets and risk-based capital data in the Call
Report.

This final rule will become effective 30 days after it is
published in the Federal Register.